BOE’s Haldane Says Vickers Plans Should Be Less Flexible

By Kevin Crowley -
Nov 7, 2012

U.K. government plans to insulate
consumer banks from future crises should be toughened and show
less “flexibility,” said Andrew Haldane, the Bank of England’s
executive director for financial stability.

The Independent Commission on Banking, led by Oxford
University Professor John Vickers, in 2011 recommended banks
separately capitalize and manage consumer banking activities to
strengthen the financial system. The proposals have a “gray
area” that may be manipulated by banks, Haldane told lawmakers.

“Flexibility in the context of the ring-fence is
perilous,” Haldane said at the Parliamentary Commission on
Banking Standards today. “I would personally prefer a somewhat
clearer ring-fence, less gray zone, drawn in a somewhat
different place than is the case currently.”

The U.K. is seeking to implement regulations including
Vickers’s proposals and Basel III capital rules, while
increasing competition and improving customer protection.
Haldane, who last month said Occupy protesters were “right” in
their criticism of banks, wants tougher rules that give lenders
less opportunity to exploit regulatory loopholes, as the Bank of
England prepares to take on responsibility for regulating firms
as well as markets next year.

Loans to small and medium-sized businesses, trade finance,
and mortgages are currently not required to be inside the so-
called ring-fence. Banks are able to decide whether activities
such as these need to be segregated from more risky elements of
finance, Haldane said.

“They are all activities, I think that we would view as
needing to remain in continuous service if a bank were to get
into trouble,” he said.

Much Power

As well as regulation, the parliamentary commission, led by
Chairman Andrew Tyrie, will develop proposals on banking
governance, transparency and conflicts of interest.

Haldane questioned whether shareholders, who he said
provide funding for 5 percent of a banks’ balance sheet, should
continue to exert an “enormous amount of power” over how
lenders are managed. Many do not hold shares for the long term,
he said.

There’s an argument for “enfranchising a broader set of
stakeholders in banking,” he said. Bondholders and depositors
bear a greater burden in the event of a bank failure and so
should have a bigger role in bank governance, he said.

The parliamentary commission is scheduled to publish its
proposals for legislation by Dec. 18.